Rally On, Traders!

The gold bulls have the upper hand. Bullion prices are soaring as everyone on Wall Street tries to get ahead of the Fed. If you picked the right players, you're ahead of just about everyone else in the market right now.

Of course if you DIDN'T pick the right players, you're missing out on a once-in-a-generation rally. That's why Victory Resources Corp. (OTC:VRCFF, also CNSX:VR in Canada) has flared on my screen.

VRCFF has a front row seat to the gold rush. They've just negotiated the rights to buy into a mining district dominated by gigantic Agnico Eagle (NYSE:AEM). It's in the Hammond Reef . . . an extremely hot address for anyone watching the precious metals map.

How hot is Hammond Reef? Agnico's geologists say there's 4.5 million ounces of gold on their end of the acreage. That's 140 tons of bullion, easily worth $9 billion. Keep that number in the back of your mind. It will come up again. 

Agnico is so possessive of this project that they bought out their partners a few years ago. That was before the rally, when gold prices were barely 60% of what they are now. A few months ago, the company paid $12 million to claw back a 2% royalty stake it didn't own yet. Do the math, this was a $600 million project . . . before gold woke up and started breaking records.

But we aren't talking about Agnico. It's a $20 billion company that's already rallied 35% YTD. We're talking about VRCFF, which now holds the keys to the acreage next door to the giant.

Here's what I'm talking about:



The zone outlined in bold is Agnico's territory. The big gold strike is the red star. But you see that area in the middle right below the red star? It's called Hammond Reef SOUTH. Not part of Agnico's concession.

And that's the acreage VRCFF controls now.  

How much bullion is hiding in that property immediately south of the Hammond Reef strike? Nobody really knows. This part of Canada has seen plenty of prospectors and old-time digging, but the modern story only starts about 15 years ago when an ambitious little company (much like VRCFF today) got serious about seeing what was really lurking in the dirt.

That little company then got bought out for $365 million. Four years later, the new owner got bought by a consortium willing to pay $3.9 billion for Hammond Reef and other exploration properties. Three years after that, Agnico bought out its last partner and now now stands alone. Unless the project moves even higher up the mining food chain, it gets all the gold.

Meanwhile, as gold prices climb to record levels, the land around Hammond Reef is getting hot. They're starting to call it the Atikokan Camp and miner after miner is striking it big here. Early-stage juniors like VRCFF come in, do a little work and their stocks can jump 3 digits practically overnight.

I'm not interested in those stocks right now because they've already made their 3 digit leaps. But now that VRCFF is right next door to the Hammond Reef, I'm wondering if that geological lightning will strike again.

So here's the deal: VRCFF has the right to earn in 100% on Hammond Reef South, minus a 2% slice for partner Abitibi Royalties (V:RZZ). If the property ends up containing an ore body that can generate $9 billion in bullion sales, for example, VRCFF can end up with $8.8 bullion of that revenue. Simple math.

But this is a company at the very early stage of its life, as far from giants like Agnico as it gets. Figure VRCFF now has 19,322,104 shares outstanding. That's a $300,000 enterprise at this super-early stage, give or take a little folding money. With 18 million ounces in the ground, Agnico is currently worth about $1,100 per ounce of resource.

By my math, if VRCFF finds just 300 ounces of gold on this site, it's earned its current market cap. Everything beyond that level points to upside . . . if of course you're like me and believe that Wall Street hates a valuation gap and will naturally resolve price imbalances.

And that's assuming gold stays where it is. We'll talk about that possibility later.

So Agnico has already done the heavy lifting to make modern gold mining in this part of the world happen. The big ecological surveys have been done. Native populations have signed off on the idea. The next wave of miners coming in should have an easier time because they aren't starting from the ground floor any more. 

Of course, there's nothing stopping Agnico or one of its peers from simply buying out a junior miner sitting on the right rock. I can't help but notice that VRCFF in particular really sticks out in that sea of Agnico acreage. If there's paydirt there, it's going to irritate the giant. And when giants feel an itch, they scratch it with cash to make it go away. 

I wouldn't be surprised to see VRCFF get acquired if the early results are even remotely encouraging. In that scenario, management will be able to demand a healthy premium on behalf of shareholders who were on the ground early and remained loyal throughout.

We already know VRCFF management is ambitious. They've been raising money offering shares along with warrants to buy more later as an incentive. Those warrants carry an exercise price of $0.10 to $0.15 lately. 

Why offer the chance to buy the stock at that level unless you're pretty confident that those warrants could actually be worth money in the foreseeable future? That's how high this company is aiming.

Admittedly, a Hammond Reef address is not free. But somehow VRCFF managed to earn its place at the party by agreeing to pay just $275,000 Canadian over the next two years in addition to 2.75 million shares of stock. They'll also need to spend $550,000 on exploration. Again, these are TINY numbers by Big Gold standards, but the impact is huge.

Using the Agnico comparison, there doesn't even have to be 1,000 ounces of gold scattered across the entire property to justify this deal. Remember, Agnico hit a 3 MILLION ounce lode just on the primary Hammond Reef site. All VRCFF needs to do is get 0.03% that lucky here. 

If there's any MORE than that, it's a bona fide win. And of course if somebody wants to buy the option and makes VRCFF an offer it can't refuse, that's okay too, right? 

After all, VRCFF has other irons in play. They're currently prospecting in British Columbia on 2,800 acres of geologically "interesting" rock. This is in the Nicola Mountains, which were once volcanoes . . . and have produced so much gold-rich ore that this type of strike is actually called "a British Columbia specialty."

If you know your geology, this is PORPHYRY, which tends to produce a lot of copper with significant gold grades and reduced ecological impact when it's time to refine. So far, VRCFF has found a vein that averages about 1 gram of gold per ton and another 10-20 pounds of copper. That's not bad at all. Technically it's good enough to justify an open pit mine. 

And if VRCFF can define bigger and richer zones, its dirt is obviously worth a whole lot more. That's where this tiny little stock becomes interesting from an investor perspective . . . down here at literally PENNIES per share, it doesn't take the mother lode to move the needle here.

With gold at $2,000 an ounce, all VRCFF needs to justify its current market cap (forget about Hammond Reef for now) is identify around 9 pounds of mineable gold on its property. The rich vein I talked about is about 3 feet thick so if even if it runs that deep for 750 feet, the resource starts to look like it can stack up bigger than the company.

And that's just one vein on big and largely unexplored acreage. This is highly prospective country. Nearby you have New Afton, which pours 77,000 ounces a year ($150 million+ on the market today) and has another 1 million ounces in the ground. That mine helped build a $1 BILLION company whose current footprint translates into about $500 in market cap per ounce in resources (proven, probably, measured and indicated).

Also nearby are historic mines like Ajax and Copper Mountain. Look at what Copper Mountain turned into as its owners dig mega tons of metal out of that hillside every year! If tiny VRCFF's ore goes down to even a fraction that depth, the stock can aspire a little higher than its current small-time sub-micro status.

Of course prospecting costs money, but at this stage it doesn't take a lot of cash to move the needle. VRCFF has committed to spend $150,000 on its current mapping and survey program, which they think will finish by the end of the quarter. Some of us will spend that much on a house or car but that's all it takes to move toward a bona fide gold mine.

The ultimate impact can be huge. If a billion-dollar behemoth spends $150,000, it's literally a drop in the bucket. But when VRCFF writes the check, it can be a real game-changing event. Every dollar counts here. And every ounce of metal the survey suggests has more leverage at this stage.

It's a wide open prospect. We know there's good ore here, just not how much. This is the exciting time in every junior miner's life.

Personally, I can't wait to see how the story evolves. For now, I want to leave you with a simple demonstration of how this year's gold rush has left little VRCFF behind.

Here's what the gold miners have done:



Amazing, right? The group has already taken off like a rocket, matching mighty Microsoft beat for beat. If you weren't here before the Fed started printing money, you missed that entire trajectory.

Now here's VRCFF, neglected because until recently a lot of people forgot this was a prospecting company at all. See the difference?



VRCFF was too little to make the first stage of the rally. But with big money saying gold can jump another 50% from here or even doubling, the first stage doesn't have to be the last. We'll be talking a lot more about this little company as it gets on Wall Street's radar. Stay tuned.


Happy, Happy, Happy Trading!